Sri Lanka economy to grow 3.7-pct in 2018: HSBC
ECONOMYNEXT – HSBC Global Research says Sri Lanka’s economy is likely to grow 3.7 percent in 2018 on strong agriculture and services growth despite weaker public administration and lower indirect taxes which slowed down growth in the June quarter.
"GDP is likely to grow at 3.7% in 2018 despite below-trend growth and mid-single digit inflation," HSBC Global Research said in a report Wednesday. The forecast is higher than Sri Lanka’s 3.3 percent GDP growth rate for 2017.
"Growth is likely to inch up in 2018 on the back of stronger agriculture and services.
"While the former recovers from weather related disruptions, the latter is likely to see healthy growth across all sectors except public administration which should continue to remain weak owing to tighter fiscal policy".
"On the one hand, a below trend GDP growth of 3.7 percent against a five-year average of 4.2 percent, and an expectation of mid-single digit inflation point towards the need to keep monetary policy accommodative," HSBC Research said.
On the other hand, US Fed rate hikes, and tighter dollar liquidity warrant tighter policy.
"On balance, we expect the Central Bank to keep the Standing Deposit Facility Rate (SDFR) and Standing Lending Facility Rate (SLFR) unchanged at 7.25 percent and 8.50 percent, respectively," HSBC said.
-Second quarter 2018-
Sri Lanka’s economy picked up across the board in the second quarter of 2018 with services growing the fastest, while a contraction in net indirect taxes pulled down GDP growth, HSBC Global Research said.
Sri Lanka’s GDP grew 3.7 percent in the June 2018 quarter, up from 3.5 percent a year earlier and 3.3 percent the previous March 2018 quarter.
Gross value added (GVA) measure of growth came in at 4.1 percent year-on-year, stronger than 3 percent in the same quarter last year, and 3.3 percent the previous (March 2018) quarter.
Net Indirect Tax (NIT) growth contracted 0.6 percent in the June 2018 quarter, the lowest since contracting 2.3 percent in September 2013.
With GDP=GVA+NIT, "the contraction in NIT pulled down GDP growth", HSBC said.
"On a seasonally adjusted quarter-on-quarter basis, growth of agriculture and industry turned positive, while that of services continued to remain positive for the fifth quarter.
"On a yearly basis, agriculture continued to grow faster than the overall economy, recovering from a heavy contraction last year due to unfavourable weather conditions," HSBC said.
Cereals, rice and vegetable cultivation had shown strong growth in the June 2018 quarter.
"Industrial growth came in better than expected, led by construction (up 1.4 percent compared to 6 percent a year earlier.
The industrial sector had contracted during the previous two quarters.
Services grew the fastest led by ICT and financial services which reported double digit growth.
"The weakest was public administration, which grew a meagre 0.6 percent, reflecting the government’s efforts towards fiscal consolidation," HSBC said.
Public administration had grown 0.9 percent a year earlier. (COLOMBO, 19 September 2018)